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Indonesia Senior Tax Official Says Google Not Likely to Be Billed More Than $73 Million -- Update

Indonesia Senior Tax Official Says Google Not Likely to Be Billed More Than $73 Million -- Update

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November 24, 2016

By Resty Woro Yuniar

JAKARTA-- Alphabet Inc.'s Google unit is nearing a settlement with Indonesian tax authorities for no more than $73 million, far less than Indonesia initially sought, a senior tax official said.

"Consider this tax amnesty for Google," Muhammad Haniv, head of the tax office's special-cases unit, said in an interview Wednesday.

If a settlement is reached, Google won't be fined, he said, and will likely owe no more than 1 trillion rupiah in back taxes. In September the agency saidGoogle owed up to five trillion rupiah in 2015 taxes and fines, a figure based on data from other government agencies about digital-ad revenue for the Indonesian market.

Google declined to comment but in the past has said it had paid all applicable taxes and was cooperating with the government.

President Joko Widodo's government, looking to increase tax collection to fund his infrastructure program, has targeted multinational companies. In April, the tax agency said it would investigate foreign internet companies, alleging they had been underpaying for years.

In Google's case, tax officials said the company treated its Indonesian unit as merely a promotional event organizer under the supervision of Google Asia Pacific, its regional headquarters in Singapore, which handles all contracts from Indonesian advertisers. Indonesian authorities assert that Google Asia Pacific pays the Indonesia unit's expenses and adds 8% that is booked as the unit's profit. Google has declined to comment.

Google and Facebook collected 70% of Indonesia's total digital advertising revenue last year of $830 million, Indonesian tax officials say. Neither company has commented on the figures. In a joint research report this year with Singapore's state investment firm Temasek, Google put Indonesia's total digital-ad market in 2015 at $300 million.

While Indonesia is targeting multinationals on taxes, it is simultaneously wooing foreign investment by deregulating many sectors.

A tax amnesty rolled out earlier this year has brought in billions of dollars. And the government has said that it is considering cutting the corporate tax rate, currently 25%, to as low as 17%, matching neighboring Singapore. Indonesia's economy is the largest in Southeast Asia, but Singapore is the popular regional hub for multinationals.

Google and the tax agency have been meeting since the September announcement. Google requested but didn't get a meeting with Finance Minister Sri Mulyani Indrawati, people familiar with the matter said.

Google in January struck a tax deal with the U.K., agreeing to pay GBP130 million ($185 million) in back taxes and interest covering the years 2005 to 2015.

The company is in a nontax dispute with the European Union, whose antitrust regulator hit it with formal charges in July, pressing it to change the way it operates in areas including advertising and shopping. The company has defended its practices. The EU has also alleged that Google abuses its dominance with its mobile operating service Android, which the company has denied.